China

The Secret of Taobao's Success

Amazon has earned the moniker “the everything store” in the U.S., but in China Alibaba’s e-commerce sites, especially Taobao.com, dominate, with Amazon (AMZN) almost nowhere to be seen.

Taobao really is the everything store: The Alibaba-owned retail platform sells everything from sunglasses to cadavers (for $21,000, to people claiming to be medical students). A friend in Beijing recently purchased the dress she would wear to her sister’s wedding from Taobao because “there are many more choices” than she could imagine finding in any shopping mall or bridal shop.

While Jack Ma’s e-commerce empire has triumphed in China for many reasons, including guanxi, business foresight, and good technology, its dominance was hardly assured.

In 2004, Amazon purchased the Chinese online bookseller and retailer Joyo.com for $74 million. The site failed to live up to its high hopes, and today Amazon commands less than 3 percent of China’s e-tail market. Similarly, EBay (EBAY)acquired once-popular Chinese e-commerce site EachNet, but market share quickly dwindled as Alibaba’s sites boomed. Even as U.S. technology companies flounder in China, McKinsey Global Institute predicts that China’s total e-commerce market could be worth $650 billion by 2020.

One of the secrets of Taobao’s success is its adeptness at understanding the quirks of “how Chinese shoppers want to transact,” says Barney Tan, a senior lecturer in business at the University of Sydney, who focuses on China’s e-commerce. “Taobao has catered to Chinese preferences for doing business—for example, it’s enabled buyers and sellers to negotiate and bargain on prices.”

Given common (often warranted) fears about being cheated online, Taobao has also “incorporated an optional escrow service to allow shoppers to pay for goods only after they’ve received and inspected them.” Its Alipay system, which somewhat resembles PayPal, can debit a Chinese bank account, so no financial card is required for online shopping sprees.

As Tan sums up a common sentiment in China, “If you want to sell something in China, you sell it on Taobao.” Not only wealthy urbanites seem to agree: Already more than 2 million Taobao stores are registered to rural IP addresses in China—a gain of 25 percent in just one year. China’s shoppers and entrepreneurs alike are turning to the ubiquitous platform.